IRS Raising Annual Gift Tax and Estate Tax Exclusions in 2023

Although inflation is generally nothing to be pleased about, the IRS recently announced inflation-adjusted changes to the gift tax annual and estate tax exclusions for 2023.

If you are considering wealth transfer tax planning, these are welcome increases.

Gift Tax Annual Exclusion

Effective January 1, 2023, the gift tax annual exclusion will increase from $16,000 (2022 number) to $17,000 per recipient. This means you can gift this amount to as many people as you wish in 2023 without using up your lifetime gift and estate tax exemption or paying gift tax. Married couples who gift-split may gift a combined $34,000 per person in 2023 without making a taxable gift.

Combined Gift and Estate Tax Exemption

Another significant change, effective January 1, 2023, is the combined gift and estate tax exclusion increase. It is currently $12.06 million, increasing to $12.92 million ($25.84 million for a married couple). The combined gift and estate tax exemption is the total amount of gifts a person may make during their lifetime, including transfers made at death, before being on the hook for gift or estate tax.

Those who have used up their lifetime exclusions as of December 31, 2022, will now be able to gift another $860,000 tax-free starting January 1, 2023. Married couples in this situation may make additional gifts of $1.72 million.

Generation-Skipping Transfer Tax Exemption

Another significant inflation-related change to be aware of: the generation-skipping transfer tax exemption is also going up. It will be $12.92 million, up from $10 million.

This may be useful for an individual who wishes to place assets in a trust for the benefit of future generations. In doing so, they may allocate their generation-skipping transfer tax exemption to this trust. The result is that these assets can remain in the trust for multiple generations without any gift, estate, or generation-skipping tax due on distributions or upon the trust’s termination.

Looking Ahead

However, readers should remember that these figures will revert to much lower amounts when the current Tax Cuts and Job Act expires on December 31, 2025, if Congress does not extend it or make it permanent. These exclusions will be reduced by approximately 50 percent to 2017 levels upon expiration, as adjusted for inflation.

There are a variety of planning strategies available to take advantage of these more significant exemption amounts before they are no longer available. If you have questions about how you can benefit from the increased tax exclusions, contact us for an estate planning consultation at (989) 356-6128. Even if you have an estate which is valued at far less than the present or projected level of estate tax exemption, it is still a good time to think about scheduling an estate planning consultation. Many people make it their New Year’s Resolution to get their  documents and affairs in order. You can take care of the first step now by calling and getting an appointment on the calendar for 2023!

If you have specific questions about your situation or would like to learn more, reach out to the team at WBH here.

Read more articles:

What You Should Know About Long-Term Care

Research shows that roughly one in seven adults aged 65 or older will need long-term care at some point in their later years. Meanwhile, tens of millions of Baby Boomers in the United States are growing older and living longer. It seems inevitable, then, that the...

What Is Hospice Care at Home?

Hospice care is a type of health care that patients with terminally ill conditions rely on at the end of their lives. This type of care focuses on pain management and emotional, spiritual, and familial support for patients nearing the end of their lives. There are...

Should You Prepare a Medicaid Application Yourself?

Navigating the Medicaid application process can be complicated, especially if you are applying for long-term care benefits. Hiring an attorney to help you through the process can be extremely helpful. Whether you should prepare and file a Medicaid application by...

6 Ways the Sandwich Generation Can Plan for The Future

Anyone experiencing the struggle of simultaneously caring for children and aging parents is part of the sandwich generation. Although “generation” is part of the phrase, it doesn’t refer to people born at a specific time. Typically, these family caregivers will be in...

Becoming a Family Caregiver for an Ailing Loved One

Taking on the responsibility of providing full-time care for an aging or disabled loved one can be a rewarding experience. Being a primary caregiver helps you rest assured that your loved one is receiving compassionate care from someone who will go above and beyond to...

Step-Up in Basis and Why It Matters in Estate Planning

Recent news stories may have made you aware of the “step-up in basis” and the current administration’s desire to eliminate or adjust it. If you are considering engaging in estate planning or you may be inheriting assets, it is important to understand what the step-up...

Medicare’s Limited Nursing Home Coverage

Many people believe that Medicare covers nursing home stays. In fact, Medicare's coverage of nursing home care is quite limited. Medicare covers up to 100 days of "skilled nursing care" per illness, but there are a number of requirements that must be met before the...

Pros and Cons of a Medicaid Asset Protection Trust

A Medicaid Asset Protection Trust (MAPT) is one option a person may consider to protect their assets from Medicaid and nursing homes or long-term care. What Is a MAPT? A MAPT is an irrevocable trust created during your lifetime. The primary goal of a MAPT is to...

Using a Roth IRA as an Estate Planning Tool

A Roth IRA does not have to be used as just a retirement plan; it can also be a way to transfer assets tax-free to the next generation. Unlike a traditional IRA, contributions to a Roth IRA are taxed, which means that the distributions are tax-free. Also, unlike a...

Majority of Adult Children Cannot Support Boomer Parents, Surveys Find

A recent survey by the American Advisors Group (AAG) finds that 55 percent of adult children say they are not financially prepared to help their Baby Boomer parents cope with rising inflation and living expenses. “Americans want to see their parents age with grace and...